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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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|x | QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------



For the quarterly period ended March 31, 2004



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------



For the transition period from
             to



Commission File No. 000-31711



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BOE FINANCIAL SERVICES OF VIRGINIA, INC.

(Exact name of small business issuer as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Virginia                                                       |  | 54-1980794                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|323 Prince St., Tappahannock, VA         |  | 22560     
|(Address of principal executive offices) |  | (Zip Code)



(804) 443-4343

(Issuers telephone number, including area code)



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Check whether
the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes  x    No ̈



State the number of shares outstanding of each of the issuers
classes of common equity as of April 30, 2004.



|                              |  |                              
|----------------------------- |  | -----------------------------
|Class                         |  | Outstanding at April 30, 2004
|Common Stock, $5.00 par value |  | 1,184,548                    



Transitional Small Business Disclosure
Format (Check one):    Yes ̈No  x



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##### Table of Contents

BOE Financial Services of Virginia, Inc.



FORM 10-QSB



INDEX



|                               |  |                                                                                                       |  |     
|------------------------------ |  | ----------------------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                                       |  | Page
|PART I  FINANCIAL INFORMATION |  |                                                                                                      
|                               |  |                                                                                                      
|Item 1.                        |  | Financial Statements                                                                                  |  | 1-5 
|                               |  |                                                                                                      
|                               |  | Consolidated Balance Sheets March 31, 2004 and December 31, 2003                                      |  | 1-2 
|                               |  |                                                                                                      
|                               |  | Consolidated Statements of Earnings Three months ended March 31, 2004 and 2003                        |  | 3   
|                               |  |                                                                                                      
|                               |  | Consolidated Statements of Cash Flows Three months ended March 31, 2004 and 2003                      |  | 4   
|                               |  |                                                                                                      
|                               |  | Consolidated Statements of Changes in Stockholders Equity Three months ended March 31, 2004 and 2003 |  | 5   
|                               |  |                                                                                                      
|                               |  | Notes to Consolidated Financial Statements                                                            |  | 6-7 
|                               |  |                                                                                                      
|Item 2.                        |  | Managements Discussion and Analysis or Plan of Operation                                             |  | 8-11
|                               |  |                                                                                                      
|Item 3.                        |  | Controls and Procedures                                                                               |  | 12  
|                               | 
|PART II OTHER INFORMATION     |  |                                                                                                      
|                               |  |                                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                                     |  | 12  
|                               |  |                                                                                                      
|Item 2.                        |  | Changes in Securities and Small Business Issuer Purchases of Equity Securities                        |  | 12  
|                               |  |                                                                                                      
|Item 3.                        |  | Defaults Upon Senior Securities                                                                       |  | 12  
|                               |  |                                                                                                      
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                   |  | 12  
|                               |  |                                                                                                      
|Item 5.                        |  | Other Information                                                                                     |  | 12  
|                               |  |                                                                                                      
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                      |  | 13  
|                               | 
|Signatures                     |  | 14                                                                                                   



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##### Table of Contents

PART I  FINANCIAL INFORMATION



Item 1.  Financial Statements

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

Consolidated Balance Sheets



|                                                                                              |  |               |         |   |                  |   |         |  
|--------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|(in Thousands except share data)                                                              |  | March 31,2004 |         |   | December 31,2003 |  
|                                                                                              |  | (Unaudited)   |         |   |                  |  
|ASSETS                                                                                        |  |               |         |   |                  |   |         |  
|Cash and due from banks                                                                       |  | $             | 9,910   |   |                  | $ | 8,948   |  
|Federal funds sold                                                                            |  |               | 5,957   |   |                  |   | 285     |  
|Securities available for sale                                                                 |  |               |         |   |                  |   |         |  
|U.S. Treasury and Government agencies (book value of $12,083-2004 and $14,048-2003)           |  |               | 12,252  |   |                  |   | 14,098  |  
|Obligations of state and political subdivisions (book value of $31,722-2004 and $31,373-2003) |  |               | 33,592  |   |                  |   | 32,869  |  
|Other Securities (book value of $4,804-2004 and $4,804-2003)                                  |  |               | 5,248   |   |                  |   | 5,234   |  
|Equity Securities, restricted, at cost                                                        |  |               | 937     |   |                  |   | 947     |  
|Loans held for resale                                                                         |  |               | 192     |   |                  |   | 0       |  
|                                                                                              |  |              
|Loans                                                                                         |  |               | 158,150 |   |                  |   | 160,509 |  
|Less: Allowance for loan losses                                                               |  |               | (2,013  | ) |                  |   | (2,128  | )
|                                                                                              |  |               |         |   |                  |   |         |  
|Net loans                                                                                     |  |               | 156,137 |   |                  |   | 158,381 |  
|                                                                                              |  |              
|Bank premises and equipment, net                                                              |  |               | 6,481   |   |                  |   | 6,526   |  
|Accrued interest receivable                                                                   |  |               | 1,183   |   |                  |   | 1,186   |  
|Intangible assets, net                                                                        |  |               | 870     |   |                  |   | 902     |  
|Other assets                                                                                  |  |               | 1,860   |   |                  |   | 2,340   |  
|                                                                                              |  |               |         |   |                  |   |         |  
|Total assets                                                                                  |  | $             | 234,619 |   |                  | $ | 231,716 |  
|                                                                                              |  |               |         |   |                  |   |         |  



See accompanying notes
to consolidated financial statements.



Page: 1



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##### Table of Contents

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

Consolidated Balance Sheets



|                                     |  |               |         |                  |   |        
|------------------------------------ |  | ------------- | ------- | ---------------- | - | -------
|                                     |  | March 31,2004 |         | December 31,2003
|                                     |  | (Unaudited)   |         |                 
|LIABILITIES AND STOCKHOLDERS EQUITY |  |               |         |                  |   |        
|Deposits                             |  |               |         |                  |   |        
|Noninterest bearing deposits         |  | $             | 24,759  |                  | $ | 24,521 
|Interest bearing deposits            |  |               | 180,532 |                  |   | 178,760
|                                     |  |               |         |                  |   |        
|Total deposits                       |  |               | 205,291 |                  |   | 203,281
|Accrued interest payable             |  |               | 314     |                  |   | 330    
|Other liabilities                    |  |               | 1,117   |                  |   | 1,183  
|Trust preferred capital notes        |  |               | 4,000   |                  |   | 4,000  
|                                     |  |               |         |                  |   |        
|Total liabilities                    |  |               | 210,722 |                  |   | 208,794
|                                     |  |               |         |                  |   |        
|Commitments                          |  |               |         |                  |   |        
|Stockholders equity                 |  |               |         |                  |   |        
|Common stock, $5.00 par value        |  |               | 5,923   |                  |   | 5,916  

|            |  |            |  |           
|----------- |  | ---------- |  | ----------
|            |  |           
|            |  | 3/31/04    |  | 12/31/03  
|Shares auth |  | 10,000,000 |  | 10,000,000
|Shares o/s  |  | 1,184,548  |  | 1,183,147 

|                                           |  |   |         |  |   |        
|------------------------------------------ |  | - | ------- |  | - | -------
|Paid in capital                            |  |   | 5,021   |  |   | 5,009  
|Accumulated other comprehensive Income,net |  |   | 1,639   |  |   | 1,304  
|Retained earnings                          |  |   | 11,314  |  |   | 10,693 
|                                           |  |   |         |  |   |        
|Total stockholders equity                 |  |   | 23,897  |  |   | 22,922 
|                                           |  |   |         |  |   |        
|Total liabilities and stockholders equity |  | $ | 234,619 |  | $ | 231,716
|                                           |  |   |         |  |   |        



See
accompanying notes to consolidated financial statements.



Page: 2



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BOE FINANCIAL SERVICES OF VIRGINIA, INC.

Consolidated Statements of Earnings



|                                                                 |  |                             |       |      |   |      
|---------------------------------------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                                                 |  | Three Months EndedMarch 31,
|(In Thousands except share data)                                 |  | 2004                        |       | 2003
|                                                                 |  | (Unaudited)                
|Interest Income                                                  |  |                             |       |      |   |      
|Interest and fees on loans                                       |  | $                           | 2,618 |      | $ | 2,781
|Interest on federal funds sold                                   |  |                             | 3     |      |   | 2    
|Interest on U.S. Treasury securities and U.S. Agency Obligations |  |                             | 117   |      |   | 83   
|Interest on obligations of state and political subdivisions      |  |                             | 327   |      |   | 282  
|Interest on other securities                                     |  |                             | 86    |      |   | 130  
|Other interest income                                            |  |                             | 1     |      |   | 1    
|                                                                 |  |                             |       |      |   |      
|Total interest income                                            |  |                             | 3,152 |      |   | 3,279
|                                                                 |  |                             |       |      |   |      
|Interest Expense                                                 |  |                             |       |      |   |      
|Interest on savings and interest bearing deposits                |  |                             | 104   |      |   | 123  
|Interest on certificates of deposit                              |  |                             | 735   |      |   | 964  
|Interest on federal funds purchased                              |  |                             | 4     |      |   | 4    
|Interest Federal Home Loan Bank advances                         |  |                             | 0     |      |   | 27   
|Interest on trust preferred capital notes.                       |  |                             | 44    |      |   | 0    
|                                                                 |  |                             |       |      |   |      
|Total interest expense                                           |  |                             | 887   |      |   | 1,118
|                                                                 |  |                             |       |      |   |      
|Net interest income                                              |  |                             | 2,265 |      |   | 2,161
|Provision for loan losses                                        |  |                             | 75    |      |   | 250  
|                                                                 |  |                             |       |      |   |      
|Net interest income after provision for loan losses              |  |                             | 2,190 |      |   | 1,911
|                                                                 |  |                             |       |      |   |      
|Noninterest Income                                               |  |                             |       |      |   |      
|Service charges on deposit accounts                              |  |                             | 245   |      |   | 181  
|Securities gains  net                                           |  |                             | 10    |      |   | 17   
|Gains on sale of loans                                           |  |                             | 16    |      |   | 19   
|Other fee income                                                 |  |                             | 57    |      |   | 46   
|All other noninterest income                                     |  |                             | 83    |      |   | 86   
|                                                                 |  |                             |       |      |   |      
|Total noninterest income                                         |  |                             | 411   |      |   | 349  
|                                                                 |  |                             |       |      |   |      
|Noninterest Expense                                              |  |                             |       |      |   |      
|Salaries and employee benefits                                   |  |                             | 965   |      |   | 885  
|Premises and fixed assets                                        |  |                             | 239   |      |   | 204  
|Other expenses                                                   |  |                             | 577   |      |   | 490  
|                                                                 |  |                             |       |      |   |      
|Total noninterest expense                                        |  |                             | 1,781 |      |   | 1,579
|                                                                 |  |                             |       |      |   |      
|Income before income taxes                                       |  |                             | 820   |      |   | 681  
|Income taxes                                                     |  |                             | 199   |      |   | 143  
|                                                                 |  |                             |       |      |   |      
|Net income                                                       |  | $                           | 621   |      | $ | 538  
|                                                                 |  |                             |       |      |   |      
|Earnings per share, basic                                        |  | $                           | 0.52  |      | $ | 0.46 
|Earnings per share, diluted                                      |  | $                           | 0.52  |      | $ | 0.45 



See accompanying notes to consolidated
financial statements.



Page: 3



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BOE FINANCIAL SERVICES OF VIRGINIA, Inc.

Consolidated Statements of Cash Flows

|
|

|                                                                                         |  |                             |        |   |      |   |        |  
|---------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                         |  | Three MonthsEnded March 31, |       
|(in Thousands)                                                                           |  | 2004                        |        |   | 2003 |  
|                                                                                         |  | (Unaudited)                 |       
|Cash Flows from Operating Activities                                                     |  |                             |        |   |      |   |        |  
|Net income                                                                               |  | $                           | 621    |   |      | $ | 538    |  
|Adjustments to reconcile net income to net cash provided by operating activities:        |  |                             |        |   |      |   |        |  
|Depreciation and amortization                                                            |  |                             | 126    |   |      |   | 121    |  
|Origination of loans held for sale                                                       |  |                             | (1,046 | ) |      |   | (1,709 | )
|Proceeds from sale of loans held for sale                                                |  |                             | 870    |   |      |   | 2,389  |  
|Provision for loan losses                                                                |  |                             | 75     |   |      |   | 250    |  
|Net amortization on securities                                                           |  |                             | 51     |   |      |   | 56     |  
|Net (gain) on sale of securities                                                         |  |                             | (10    | ) |      |   | (17    | )
|(Gain) on sale of loans                                                                  |  |                             | (16    | ) |      |   | (19    | )
|Decrease in accrued interest receivable and other assets                                 |  |                             | 186    |   |      |   | 95     |  
|Increase in accrued expenses and other liabilities                                       |  |                             | 42     |   |      |   | 238    |  
|                                                                                         |  |                             |        |   |      |   |        |  
|Net cash provided by operating activities                                                |  |                             | 899    |   |      |   | 1,942  |  
|                                                                                         |  |                             |        |   |      |   |        |  
|Cash Flows from Investing Activities Proceeds from sale of securities available-for-sale |  |                             | 2,011  |   |      |   | 568    |  
|Proceeds from maturities and calls of securities available-for-sale                      |  |                             | 765    |   |      |   | 1,292  |  
|Purchase of securities available for sale                                                |  |                             | (1,200 | ) |      |   | (597   | )
|Proceeds from redemption of equity securities.                                           |  |                             | 10     |   |      |   |       |  
|Net (increase) decrease in loans to customers.                                           |  |                             | 2,169  |   |      |   | (2,691 | )
|(Increase) decrease in federal funds sold                                                |  |                             | (5,672 | ) |      |   | 2,305  |  
|Capital expenditures                                                                     |  |                             | (49    | ) |      |   | (217   | )
|                                                                                         |  |                             |        |   |      |   |        |  
|Net cash provided by (used in) investing activities                                      |  |                             | (1,966 | ) |      |   | 660    |  
|                                                                                         |  |                             |        |   |      |   |        |  
|Cash Flows from Financing Activities                                                     |  |                             |        |   |      |   |        |  
|Net increase (decrease) in deposits                                                      |  |                             | 2,010  |   |      |   | (672   | )
|Issuance of Common Stock                                                                 |  |                             | 19     |   |      |   | 5      |  
|Increase in federal funds purchased                                                      |  |                             | 0      |   |      |   | 689    |  
|                                                                                         |  |                             |        |   |      |   |        |  
|Net cash provided by financing activities                                                |  |                             | 2,029  |   |      |   | 22     |  
|Net increase in cash and cash equivalents                                                |  |                             | 962    |   |      |   | 2,624  |  
|Cash and Cash Equivalents                                                                |  |                             |        |   |      |   |        |  
|Beginning of period                                                                      |  |                             | 8,948  |   |      |   | 5,603  |  
|                                                                                         |  |                             |        |   |      |   |        |  
|End of period                                                                            |  | $                           | 9,910  |   |      | $ | 8,227  |  
|                                                                                         |  |                             |        |   |      |   |        |  
|Supplemental disclosure of cash flow information                                         |  |                             |        |   |      |   |        |  
|Cash paid during the year                                                                |  |                             |        |   |      |   |        |  
|Interest                                                                                 |  | $                           | 903    |   |      | $ | 1,194  |  
|                                                                                         |  |                             |        |   |      |   |        |  
|Income Taxes                                                                             |  | $                           | 0      |   |      | $ | 0      |  
|                                                                                         |  |                             |        |   |      |   |        |  



See
accompanying notes to consolidated financial statements.



Page: 4



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##### Table of Contents

BOE Financial Services of Virginia, Inc.

Consolidated Statements of Changes in Stockholders Equity

For the Three Month Periods Ended March 31, 2004 and 2003

(in thousands)

(Unaudited)



|                                                                        |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|----------------------------------------------------------------------- |  | ----------- | ----- | -------------- | - | ---------------- |  | ------------------------------------ | ------ | ------------------- | - | ----- | ----- | - | --- | - |  | - | ------
|                                                                        |  | CommonStock |       | Paid-InCapital |   | RetainedEarnings |  | Accumulated OtherComprehensiveIncome |        | ComprehensiveIncome |   |       | Total
|Balance, December 31, 2002                                              |  | $           | 5,889 |                | $ | 4,931            |  | $                                    | 8,948  |                     | $ | 1,578 |       |   |     |   |  | $ | 21,346
|Comprehensive Income:                                                   |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|Net income                                                              |  |             |       |                |   |                  |  |                                      | 538    |                     |   |       |       | $ | 538 |   |  |   | 538   
|Other comprehensive income, net of tax:                                 |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|Unrealized gain on securities available for sale, net of deferred taxes |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   | 64  |   |  |   |       
|Less: Reclassification adjustment, net of tax                           |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   | (11 | ) |  |   |       
|                                                                        |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|Other comprehensive income, net of tax                                  |  |             |       |                |   |                  |  |                                      |        |                     |   | 53    |       |   | 53  |   |  |   | 53    
|                                                                        |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|Total comprehensive income                                              |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   | 591 |   |  |   |       
|                                                                        |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|Issuance of common stock                                                |  |             | 2     |                |   | 3                |  |                                      |        |                     |   |       |       |   |     |   |  |   | 5     
|                                                                        |  |             | 2     |                |   | 3                |  |                                      |        |                     |   |       |       |   |     |   |  |   | 5     
|                                                                        |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|Balance, March 31, 2003                                                 |  | $           | 5,891 |                | $ | 4,934            |  | $                                    | 9,486  |                     | $ | 1,631 |       |   |     |   |  | $ | 21,942
|                                                                        |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|                                                                        |  |             |       |                |   |                 
|                                                                        |  | CommonStock |       | Paid-InCapital |   | RetainedEarnings |  | AccumulatedOtherComprehensiveIncome  |        | ComprehensiveIncome |   |       | Total
|Balance, December 31, 2003                                              |  | $           | 5,916 |                | $ | 5,009            |  | $                                    | 10,693 |                     | $ | 1,304 |       |   |     |   |  | $ | 22,922
|Comprehensive Income:                                                   |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|Net income                                                              |  |             |       |                |   |                  |  |                                      | 621    |                     |   |       |       | $ | 621 |   |  |   | 621   
|Other comprehensive income, net of tax:                                 |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|Unrealized gain on securities available for sale, net of deferred taxes |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   | 342 |   |  |   |       
|Less: Reclassification adjustment, net of tax                           |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   | (7  | ) |  |   |       
|                                                                        |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|Other comprehensive income, net of tax:                                 |  |             |       |                |   |                  |  |                                      |        |                     |   | 335   |       |   | 335 |   |  |   | 335   
|                                                                        |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|Total comprehensive income                                              |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   | 956 |   |  |   |       
|                                                                        |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|Issuance of common stock                                                |  |             | 7     |                |   | 12               |  |                                      |        |                     |   |       |       |   |     |   |  |   | 19    
|                                                                        |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       
|Balance, March 31, 2004                                                 |  | $           | 5,923 |                | $ | 5,021            |  | $                                    | 11,314 |                     | $ | 1,639 |       |   |     |   |  | $ | 23,897
|                                                                        |  |             |       |                |   |                  |  |                                      |        |                     |   |       |       |   |     |   |  |   |       



See
accompanying notes to consolidated financial statements.



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##### Table of Contents

BOE FINANCIAL SERVICES OF VA., INC.

Notes to Consolidated Financial Statements

(Unaudited)



1. The accounting and reporting policies of BOE Financial Services of Virginia, Inc. (the
Company or BOE) conform to accounting principles generally accepted in the United States of America and to the general practices within the banking industry. The interim financial statements have not been audited; however, in
the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the consolidated financial statements have been included. Operating results for the three month period ended March 31,
2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.



These financial statements should be read in conjunction with the financial statements and the footnotes included in the registrants 2003 Annual Report to Shareholders.



2. At March 31, 2004, the Company had a stock-based employee compensation plan. The Company
accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options
granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value
recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.



|                                                                                                                                  |  |      |      |   |      |   |      |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|Periods Ended March 31,                                                                                                           |  | 2004 |      |   | 2003 |  
|Net income, as reported                                                                                                           |  | $    | 621  |   |      | $ | 538  |  
|Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of tax
effect |  |      | (15  | ) |      |   | (10  | )
|Pro forma net income                                                                                                              |  | $    | 606  |   |      | $ | 528  |  
|Earnings per share:                                                                                                               |  |      |      |   |      |   |      |  
|Basic-as reported                                                                                                                 |  | $    | 0.52 |   |      | $ | 0.46 |  
|Basic-pro forma                                                                                                                   |  | $    | 0.51 |   |      | $ | 0.45 |  
|Diluted-as reported                                                                                                               |  | $    | 0.52 |   |      | $ | 0.45 |  
|Diluted-pro forma                                                                                                                 |  | $    | 0.51 |   |      | $ | 0.45 |  



3. Earnings per share are based on the
weighted average number of common shares and common stock equivalents outstanding during the applicable periods. Potential dilutive common stock had no effect on income available to common shareholders.



|                                 |  |                |  |                |      |        |           |           |   |     
|-------------------------------- |  | -------------- |  | -------------- | ---- | ------ | --------- | --------- | - | ----
|                                 |  | March 31, 2004 |  | March 31, 2003
|                                 |  | Shares         |  | Per Share      |      | Shares |           | Per Share
|Basic earnings per share         |  | 1,183,924      |  | $              | 0.52 |        | 1,177,924 |           | $ | 0.46
|Effect of dilutive stock options |  | 9,152          |  |                |      |        | 6,624     |           |   |     
|Diluted earnings per share       |  | 1,193,076      |  | $              | 0.52 |        | 1,184,548 |           | $ | 0.45



4. Loans are shown on the balance
sheets net of unearned discounts and the allowance for loan losses. Interest is computed by methods which result in level rates of return on principal. Loans are charged off when in the opinion of management they are deemed to be uncollectable after
taking into consideration such factors as the current financial condition of the customer and the underlying collateral and guarantees. Loan fees and origination costs are deferred and the net amount amortized as an adjustment of the related loans
yield using the level yield method. Bank of Essex (the Bank), a wholly owned subsidiary of the Company, is amortizing these amounts over the contractual life of the related loans.



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5. Defined Benefit Pension Plan



Components of Net Periodic Benefit Cost

Three months ended March 31,

(In Thousands)



|                                             |  |                  |     |   |      |   |     |  
|-------------------------------------------- |  | ---------------- | --- | - | ---- | - | --- | -
|                                             |  | Pension Benefits |    
|                                             |  | 2004             |     |   | 2003 |  
|Service cost                                 |  | $                | 61  |   |      | $ | 50  |  
|Interest cost                                |  |                  | 50  |   |      |   | 42  |  
|Expected return on plan assets               |  |                  | (53 | ) |      |   | (33 | )
|Amortization of prior service cost           |  |                  | 1   |   |      |   | 1   |  
|Amortization of net obligation at transition |  |                  | (1  | ) |      |   | (1  | )
|Amortization of net (gain) loss              |  |                  | 9   |   |      |   | 9   |  
|                                             |  |                  |     |   |      |   |     |  
|Net periodic benefit cost                    |  | $                | 67  |   |      | $ | 68  |  
|                                             |  |                  |     |   |      |   |     |  



Employer Contributions



The Company previously disclosed in its
financial statements for the year ended December 31, 2003, that it expected to contribute $186,000 to its pension plan in 2004. As of March 31, 2004, no contributions have been made.



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Item 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION CRITICAL ACCOUNTING POLICIES



General



The Companys financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The financial information contained within the statements is, to a
significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income,
recognizing an expense, recovering an asset or relieving a liability. The Company uses historical loss factors as one factor in determining the inherent loss that may be present in its loan portfolio. Actual losses could differ significantly from
the historical factors that the Company uses. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the Companys transactions would be the same, the timing of events that would
impact its transactions could change.



Critical Accounting Policies



There have been no changes in the Companys critical
accounting policies from those described in the Companys Form-10KSB for the year ended December 31, 2003.



Allowance for Loan Losses



The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of
accounting: (i) SFAS 5, Accounting for Contingencies,which requires that losses be accrued when they are probable of occurring and estimatable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan,which requires that
losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. The use of these values is inherently subjective and our
actual losses could be greater or less than the estimates.



The
allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Managements periodic evaluation of the adequacy of the allowance is based on past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrowers ability to repay, the estimated value of any underlying collateral, and current economic conditions.



The following discussion is intended to assist readers in understanding and evaluating the financial condition and results
of operations of the Company and the Bank. This section should be read in conjunction with BOEs consolidated financial statements and accompanying notes included elsewhere in this report.



Overview



On March 31, 2004, BOE had total assets of $234.7 million, an increase of
$2.9 million or 1.3% from $231.7 million at December 31, 2003. Total assets at March 31, 2003 were $229.0 million. The March 31, 2004 total assets figure represents an increase of 2.5% or $5.7 million over one year ago.



Total loans amounted to $158.2 million on March 31, 2004, a decrease of $2.4
million, or 1.5%, over December 31, 2003 total loans of $160.5 million. The March 31, 2004 figure represents a decrease of $8.2 million, or 4.9%, over total loans of $166.4 million on March 31, 2003. The reduction in loans primarily occurred in the
competitive commercial loan category as borrowers have been obtaining fixed rate funding and banks have aggressively priced this competitive category, causing the Company to see a reduction of $1.1 million from year-end to March 31, 2004 and a
reduction of $3.7 million from March 31, 2003. Additionally, all other loans decreased $572,000 from December 31, 2003 to March 31, 2004 and loans to individuals decreased $287,000 during the same time frame. All other loans decreased $3.3 million
from March 31, 2003 to March 31, 2004 and loans to individuals decreased $983,000 during the same time period.



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The Companys securities portfolio decreased $1.1 million, or 2.1%, from $52.2 million at December
31, 2003 to $51.1 million at March 31, 2004. Total securities were $44.3 million on March 31, 2003. Federal funds sold were $6.0 million on March 31, 2004, at December 31, 2003 BOE had sold $285,000 of federal funds.



The Company is required to account for the effect of market changes in the
value of securities available-for-sale (AFS) under SFAS 115. The market value of the March 31, 2004 AFS securities portfolio was $51.1 million compared to $52.2 million at December 31, 2003 and $44.3 million at March 31, 2003. The impact of the
change in market value of AFS securities, net of deferred income taxes, is reflected in the Statement of Changes in Stockholders Equity under Accumulated Other Comprehensive Income. On March 31, 2004, $2.5 million represented the
Companys net unrealized gain on AFS securities compared to $2.0 million at December 31, 2003 and a net unrealized gain of $2.5 million at March 31, 2003. These totals are also reported on the Balance Sheet under Stockholders Equity
on the Accumulated Other Comprehensive Income line.



Total
deposits at March 31, 2004 were $205.3 million. This represented an increase of $2.0 million, or 10%, over December 31, 2003 deposits of $203.3 million and a $4.7 million, or 2.3%, increase over total deposits of $200.6 million at March 31, 2003.
The increase in deposits from March 31, 2003 to March 31, 2004 was the result of a $5.9 million increase in demand deposit accounts, a $1.6 million increase in money market accounts, a $4.2 million increase in other savings accounts and a decrease
of $9.6 million in certificates of deposit as the Company priced these accounts non-aggressively in an effort to improve its net interest margin.



Stockholders equity at March 31, 2004 was $23.9 million and represented 10.2% of total assets. Stockholders equity was $22.9 million, or 9.9%
of total assets at December 31, 2003 and $21.9 million, or 9.6% of total assets at March 31, 2003.



Results of Operations



Net Income



Net income was $621,000 for the first quarter of 2004, or $0.52 per diluted share. This compares to net income of $538,000, or $0.45 per diluted share in
the first quarter of 2003. The increase in earnings through one quarter of 2004 over 2003 was $83,000, or 15.4%.



The increase in earnings in the first quarter of 2004 as compared to the same period in 2003 was primarily attributable to an increase of 14.6% or
$279,000 in net interest income after provision for loan losses. Net interest income after provision for loan losses of $2,190,000 in the first quarter of 2004 compared to net interest income after provision for loan losses of $1,911,000 for the
same period in 2003. Net interest income improved by $103,000 during this period and provision for loan losses decreased, thus improving net interest income after provision for loan losses, $175,000 in 2004 compared to 2003.



Also contributing to the increase in net income for the first quarter of 2004
compared to the same period in 2003 was a $62,000 increase in noninterest income. Noninterest income was $411,000 in the first quarter of 2004 compared to $349,000 for the same period in 2003. This is an increase of 17.8%.



Increases to net income were offset by an increase of 12.8%, or $202,000 in
noninterest expenses, an $56,000 increase in income tax expenses and a $7,000 decrease in security gains.



Net Interest Income



The Companys results of operations are significantly affected by its ability to manage effectively the interest rate sensitivity and maturity of its
interest-earning assets and



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interest-bearing liabilities. At March 31, 2004, the Companys interest-earning assets exceeded its interest-bearing
liabilities by approximately $31.8 million, compared with a $22.85 million excess one year ago. Net interest margins on a fully tax equivalent basis were 4.38% through March 31, 2004 compared to 4.13% through March 31, 2003. The improvement in net
interest margin was the result of a reduction in the cost of total interest-bearing liabilities from 2.41% in the first quarter of 2003 to 1.88% in the first quarter of 2004 while the yield on the Companys total earning assets fell only 28
basis points from 6.25% in the first quarter of 2003 to 5.97% in the first quarter of 2004. As interest rates have stabilized, management does not believe this margin improvement will continue throughout 2004, but will remain at about current levels
until interest rates are changed by the Board of Governors of the Federal Reserve.



The Companys loan-to-deposit ratio was 82.5%, on average, through the first three months of 2003 compared to 78.8% for the same period in 2004.



Provision for Credit Losses



The Companys provision for credit losses decreased to $75,000 for the first quarter of 2004 compared to $250,000 in
the first quarter of 2003 due to a reduction in total loans of $2.4 million, a reduction in classified loans of $194,000 and a reduction in unfunded commitments of $886,000 at March 31, 2004 compared to December 31, 2003. Net charged-off loans were
$190,000 in the first quarter of 2004 and $174,000 in the first quarter of 2003.



Noninterest Income



Noninterest income, including gains/(losses) on securities was $411,000 in the first quarter of 2004 compared to $349,000 in the same period of 2003. This
represents an increase of 17.8%, or $62,000. Service charges on deposit accounts were $245,000 in the first quarter of 2004 and $181,000 in the first quarter of 2003. This increase was the result of higher levels of demand deposit accounts and due
to the implementation of an automated program for overdraft fees, which significantly reduced the percentage of fees waived by the Bank. Other fee income increased 23.9%, from $46,000 in the first quarter of 2003 to $57,000 in the first quarter of
2004, due to increased sales activity by the Banks investment program. In the first quarter of 2004, the Company realized gains on AFS securities of $10,000 and in the first quarter of 2003 $17,000 in gains from sales of such securities. All
other noninterest income decreased 3.5% or $3,000, from $86,000 in the first quarter of 2003 to $83,000 in the first quarter of 2004 as a result of a decrease in insurance income.



Noninterest Expenses



Noninterest expenses increased $202,000, or 12.8%, from $1.6 million in the first quarter of 2003 to $1.8 million in the
first quarter of 2004. Other expenses comprised the largest component of this increase, $87,000, from $490,000 in the first quarter of 2003 to $577,000 in the first quarter of 2004. Exams, professional and legal, up $20,000 in the first quarter of
2004 over 2003, were the largest component of this increase. Postage, marketing, Bank franchise tax and telephone comprised the remainder of the increase. Salaries and employee benefits increased $80,000, or 9.0%, from $885,000 in the first quarter
of 2003 to $965,000 in the first quarter of 2004. Salaries and employee benefits increased due to the addition of six full time equivalent employees, from 83 for the first quarter of 2003 to 89 for the same period in 2004. Premises and fixed assets
increased $35,000, or 17.2%, from $204,000 in the first quarter of 2003 to $239,000 in the first quarter of 2004, primarily due to a $22,000 increase in software and support.



Income Taxes



Income tax expense through March 31, 2004 was $199,000. This represents a $56,000, or 39.2% increase over $143,000 in income tax expense for the same
period in 2003.



Asset Quality



The Companys allowance for credit losses totaled $2.0 million on March
31, 2004 or 1.27% of total loans, as compared to



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1.33% at December 31, 2003 and 1.32% on March 31, 2003. On March 31, 2004, the Company had nonaccruing assets of $1.6 million compared to $2.5 million on
March 31, 2003. Loans past due and still accruing interest totaled $189,000 on March 31, 2004 compared to $215,000 on March 31, 2003.



Capital Requirements



The determination of capital adequacy depends upon a number of factors, such as asset quality, liquidity, earnings, growth trends and economic conditions.
The Company seeks to maintain a strong capital base to support its growth and expansion plans, provide stability to current operations and promote public confidence in the Company.



The federal banking regulators have defined three tests for assessing the capital strength and adequacy of banks, based on
two definitions of capital. Tier 1 Capital is defined as a combination of common and qualifying preferred stockholders equity less goodwill. Tier 2 Capital is defined as qualifying subordinated debt and a portion of the
allowance for loan losses. Total Capital is defined as Tier 1 Capital plus Tier 2 Capital.



Three risk-based capital ratios are computed using the above capital definitions, total assets and risk-weighted assets and are measured against
regulatory minimums to ascertain adequacy. All assets and off-balance sheet risk items are grouped into categories according to degree of risk and assigned a risk-weighting and the resulting total is risk-weighted assets. Tier 1 Risk-based
Capital is Tier 1 Capital divided by risk-weighted assets. Total Risk-based Capital is Total Capital divided by risk-weighted assets. The Leverage ratio is Tier 1 Capital divided by total average assets.



The Companys ratio of total capital to risk-weighted assets was 13.14%
on March 31, 2004 compared to 11.80% on March 31, 2003. Its ratio of Tier 1 Capital to risk-weighted assets was 12.01% on March 31, 2004 and 10.60% on March 31, 2003. The Companys leverage ratio (Tier I capital to average adjusted total
assets) was 9.29% on March 31, 2004 and 8.56% on March 31, 2003. These ratios exceed regulatory minimums. The improvement in these ratios in 2004 compared to 2003 was the result of the Company raising $4.0 million in trust preferred subordinated
debt in the fourth quarter of 2003 that qualifies as regulatory capital. This trust preferred debt has a 30-year maturity with a 5-year call option and was issued at a rate of three month LIBOR plus 3.00% for an initial rate of 4.17%.



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Item 3. Controls and Procedures



Based
on their most recent review, which was completed as of the last day of the period covered by this report, the Companys principal executive officer and principal financial officer have concluded that the Corporations disclosure controls
and procedures are effective to ensure that information required to be disclosed by the Corporations in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the
Corporations management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to ensure that such information is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms. There were no significant changes in the Corporations internal controls or in other factors that could significantly affect those controls
subsequent to the date of their evaluation.



PART II  OTHER INFORMATION



Item 1.  Legal Proceedings



None



Item 2.  Changes in Securities and Small Business Issuer Purchases of Equity Securities



None



Item 3.  Defaults Upon Senior Securities



None



Item 4. Submission of Matters to a Vote of Security Holders



None



Item 5.  Other Information



None



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Item 6.  Exhibits and Reports on Form 8-K



On February 2, 2004, the Company filed a Form 8-K announcing the results of operations for the year ended December 31, 2003 and the fourth quarter of 2003..



The information furnished in such Form 8-K, including Exhibit 99.1, shall not
be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.



(a) Exhibit Listing



|              |  |                                                                                                                                                                                                                                                                                   
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                       
|2             |  | Agreement and Plan of Reorganization (the Reorganization Agreement) dated as of March 20, 2000 between the Corporation and Bank. (Exhibit A of the Proxy Statement included in Form
S-4 Registration Statement (No. 333-33260) filed March 24, 2000, incorporated by reference).
|              | 
|3(a)          |  | Articles of Incorporation of the Corporation (Appendix 1 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement (No. 333-33260) filed March 24, 2000, incorporated by
reference).                                                                        
|              | 
|3(b)          |  | Bylaws (Appendix 2 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement (No. 333-33260) filed March 24, 2000, incorporated by reference).                                                                                                              
|              | 
|10(a)         |  | The Corporations Stock Incentive Plan (Appendix 3 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement (No. 333-33260) filed March 24, 2000, incorporated by
reference).                                                                              
|              | 
|10(b)         |  | First Amendment to the Corporations Stock Incentive Plan (Exhibit 99(b) to Form S-8 Registration Statement (No. 333-49538) filed November 8, 2000, incorporated by
reference).                                                                                                   
|              | 
|10(c)         |  | The Corporations Stock Option Plan for Outside Directors (Appendix 4 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement (No. 333-33260) filed March 24,
2000, incorporated by reference).                                                           
|              | 
|10(d)         |  | First Amendment to the Corporations Stock Option Plan for Outside Directors (Exhibit 99(d) to Form S-8 Registration Statement (No. 333-49538) filed November 8, 2000, incorporated by
reference).                                                                                
|              | 
|31.1          |  | Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act.                                                                                                                                                                             
|              | 
|31.2          |  | Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act                                                                                                                                                                              
|              | 
|32            |  | Certification of Chief Executive Officer and Chief Financial Officer.                                                                                                                                                                                                             
|              | 
|99.1          |  | BOE Financial Services Dividend Reinvestment Plan (Incorporated by reference to the Registrants Registration Statement on Form S-3D filed November 8, 2000)                                                                                                                      



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Signatures



In accordance with to the
requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





|             |  |  |  |     |  |  |  |                                                                                       
|------------ |  |  |  | --- |  |  |  | --------------------------------------------------------------------------------------
|             |  |  |  |     |  |  |  | BOE Financial Services of Virginia, Inc. (Registrant)                                 
|             |  |  |  |    
|May 17, 2004 |  |  |  | By: |  |  |  | /s/ George M. Longest, Jr.                                                            
|             |  |  |  |     |  |  |  | (Signature) George M. Longest, Jr. President and Chief Executive Officer              
|             |  |  |  |    
|May 17, 2004 |  |  |  | By: |  |  |  | /s/ Bruce E. Thomas                                                                   
|             |  |  |  |     |  |  |  | (Signature) Bruce E. Thomas Secretary, Senior Vice President & Chief Financial Officer



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